Thai Baht Slips to Three-Week Low After Fed Decision; Malaysian and Indian Currencies at Two-Week Lows

A shopkeeper counts Indian currency notes inside his shop in Jammu July 14, 2010.REUTERS

Asian currencies weakened on Thursday as the Federal Reserve said the US economic recovery is on track, triggering speculation that the world's largest economy could start hiking rates sooner than markets' expectations.

Tighter dollar will effectively make Asian assets costlier, hurting inflows to the region.

As expected, the Fed did not change the Fed Funds Rate, its benchmark interest rate, but ended its monthly bond purchase programme.

The concern of dollar gradually becoming tighter has been weighing on the Asian units for quite a while and the impact on Thursday was just a reaction to the news.

It was in June last year that former Fed chairman Ben Bernanke announced the tapering of the central bank bond buying from $85bn per month.

Bernanke had also suggested in that statement that if inflation followed a 2% target rate and unemployment decreased to 6.5%, the Fed would likely start raising rates.

The statement by Janet Yellen on Wednesday in effect has ignored the recent financial market volatility and focused on the strengthening job market.

USD/THB rose to 32.590 on Thursday, a three-week high. It has been upward through this week and at a high so far on Thursday, with the baht sliding 0.6% on the week.

The Malaysian ringgit and Indian rupee fell to two-week lows following the Fed statement while their Chinese peer posted a daily decline, moving off the 10-month high touched on the previous day.

USD/MYR rose to 3.2903, its highest since 17 October, from 3.2725 at Wednesday's close. With another 90 pips, the pair will match the 7-month high touched on 16 October.

USD/INR rose to 61.54, also a high since 17 October, from the previous close of 61.27. The pair is broadly keeping the uptrend since mid-May but 62.0 has proved a strong resistance level over the past few months.

USD/CNY has edged higher to 6.1172 on Thursday from Wednesday's close of 6.1110, which was its lowest since late February.